Since the start of 2021, the BT (LSE: BT-A) share price has risen over 30%. At one point, it was even able to reach 200p for the first time since December 2019. Nonetheless, it has since fallen back to around 184p. As such, is this the start of a major decline or can the BT share price reach its pre-pandemic highs?
Despite the impact of the pandemic, the fiscal year 2021 trading update was decent. Indeed, revenues were £21.3bn, only 7% lower than the year before. Profits were also fairly resilient, 15% lower than the previous year at £1.47bn. These results demonstrated that BT has been able to navigate its way through the pandemic while remaining profitable, and this is definitely a promising sign.
I was also impressed that the company had managed to reduce its net debt slightly to £17.8bn. Although this is still far higher than I would like, it is certainly a move in the right direction. This was especially impressive because a number of other UK companies were forced to issue more debt to survive. If net debt can be cut further, I feel that it will allow more investment in other areas in the company. This would likely have a positive effect on the BT share price.
There are a number of other factors that I feel may impact the BT share price. Firstly, there is the potential sale of BT Sport. Although no buyer has been found yet, I believe that a sale would have a positive impact on the share price. This is because it will allow the company to focus on its core telecommunications business. I feel that such a simplification of the business will help it increase profits.
Another promising sign was the recent investment from Patrick Drahi, who took a 12% stake in the business. Drahi is the founder of Altice, a French multinational telecommunications corporation. Therefore, his investment shows optimism that BT can grow profits over the next few years and is currently underpriced.
One key risk for the company is its huge pension deficit of £8bn. There are two main reasons why this is such a problem. Firstly, it needs paying off, and this is likely to strain profits over the next few years. Secondly, it may deter any potential bidders for the company, something which usually causes a rise in the share price. This is despite previous takeover speculation.
Has the BT share price got further to rise?
I personally don’t believe that the BT share price will be able to reach its pre-pandemic highs any time soon. The telecommunications market in Europe is mature, and BT faces a large amount of competition.
Despite this, I still feel that the share price has further to rise. It has price-to-earnings ratio of around 10. This indicates a fairly cheap valuation. And I expect that the company will reinstate its dividend soon. Not only would this potentially attract dividend investors, but it is a major sign of optimism. As such, I believe that the BT share price has some upside potential, and I am tempted to add some shares to my portfolio.
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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.